'Toy Story 3' in the works

Making of film could further damage Disney-Pixar union

LOS ANGELES, California (Hollywood Reporter) -- Walt Disney Studios is actively proceeding with a second sequel to Pixar Animation's "Toy Story" franchise, a move that could make it more difficult for the two companies to extend their rocky relationship.

Disney is in the process of setting up a digital animation facility in Glendale -- not far from the digs of its bitter rival DreamWorks Animation -- that will be used for the production of "Toy Story 3."

While Disney has the rights to do sequels to "Toy Story," it has held off from doing so in the past, in part in deference to Pixar CEO Steve Jobs and executive VP John Lasseter, both of whom haven't wanted to lose control of the characters.

But with Pixar announcing earlier this year that it would end its distribution relationship with Disney following the 2005 release of the Lasseter-directed "Cars," Disney CEO Michael Eisner and studio head Dick Cook have signaled their determination to bring Woody, Buzz Lightyear and the gang back to the big screen.

The project falls under the aegis of David Stainton, president of Walt Disney Feature Animation. Andrew Millstein, who headed the company's now-shuttered animation facility in Orlando, also is involved and has begun the process of recruiting animation heavyweights from rival animation studios and effects shops.